When we write about investors on this blog we are normally referring to angel and VC investors and the funding they provide to open source start-ups. There is a small, but growing, list of VCs that clearly understand the open source development and distribution models and the long-term profit potential of open source software vendors.

Can the same be said of individual and institutional investors buying and selling shares in publicly traded software companies? Not according to the analysis of Oliver Alexy, a research assistant and doctoral candidate at the Technische Universität München TUM Business School in Munich, Germany.

Oliver has analyzed the impact that releasing software under open source licenses has on a company’s share price. Details have been published this week in the Wall Street Journal and suggest that there may well be a positive reaction to open source moves from shareholders, but only if they see an opportunity for short-term gain.

“Companies saw their stock price rise if they met one crucial condition: explaining how they expected their open strategy to bring in short-term revenue. Companies that clearly communicated a short-term revenue model saw an average stock-price increase of 1.6%. Companies that didn’t saw an average decline of 1.6%,” he writes.

As Matt Asay points out, “this betrays a woefully naive view of open source by the market.” It could also be damaging to open source software in the long-term.

Take Sun’s open source conversion as an example. It is a long-term bet that by making its software freely available, Sun increases the chances of it being adopted. While there are some users that will never pay for support, Sun is casting a wider net in an attempt to seed adoption of its commercial server, storage and software support services and/or block adoption of rival technologies.

It will take some time for this strategy to play out, and in the meantime the company has to deal with the impact of issues such as under-performing legacy products and regional slowdowns. Any investors expecting the $1bn spent on MySQL to quickly, or even partially, make up for a 10% YoY decline in US revenue is likely to be disappointed.

This is not to criticize either Sun’s overall strategy of the acquisition of MySQL. In many ways it does not matter whether Sun’s strategy is sound or not, however. What matters is whether Sun’s investors have the patience to wait for long-term returns. If Oliver Alexy’s analysis is correct, they will be the exceptions rather than the rule if they do.

See also Oliver Alexy’s paper, “Putting a value on openness: the effect of product source code releases on the market value of firms”. (PDF)